It will pass without comment in Australia, just as the results from the world’s biggest copper miner, Freeport and Peabody Energy, the world’s largest private coal producer, did last week.
But the annual results and outlook for Arcelor Mittal, the world’s biggest steel group, contain quite a bit of forward information for those looking at the prospects for resources in the coming months.
In fact Arcelor’s report and others from the shipping industry, suggest that anyone reading bullishness into an apparent turnaround in Chinese steel demand for coal and iron ore, had better rethink.
A bounce will come this year, but it could take one to two years for the company’s steel output merely to make it back to levels where it was in October 2008, before the demand collapsed in the wake of the deepening of the financial crisis.
At the same time, the International Energy Association has cut its 2009 global oil consumption estimate for a 6th time, with a slump in Chinese demand a major factor in the million barrels a day cut.
And Chinese import figures for last month reveal lower imports of oil (and copper) and some improvement in other raw materials.
That’s a sign that 2009 at least won’t be a booming year: it will be a struggle to break-even, especially in resources and among their end users.
Some of Mittal’s biggest consumers are to be found in the depressed car industries of Europe, the US and Russia and among the whitegoods and construction sectors in those and other economies such as India. All will be depressed for the next year.
Cars are more exposed than most because of the way demand is still falling. That is not a confidence boosting indicator for steel demand, or for coal and iron ore.
Arcelor Mittal (which only has a small presence in China, compared to its positions in the markets of Europe, India and North America) suggested that there is some good news from the re-stocking by Chinese steel mills (which BHP Billion mentioned last week with its interim report).
But Arcelor is not really taking that seriously: it’s maintaining its 34%-plus production cut for this quarter and will re-examine market conditions in four weeks or so time as it explained in its 4th quarter statement.
Chairman Lakshmi Mittal sees no improvement for several months, until later in the year.
He told a press briefing this week that January and February were “the bottom of the market”, and he was optimistic for prospects in the second half of 2009.
Comments like this and those from BHP last week have helped pump some optimism in the shipping sector where higher iron ore shipments (as a result of steelmakers restocking during January) raised demand for bulk carriers and prompted a surge in freight rates.
The Baltic Dry Index for Capesize vessels for the dry bulk trade has doubled so far this month to hit a four-month high this week.
Arcelor Mittal and other steel groups have started restocking, but it’s no boom.
After all, it is credited with defaulting on coal contracts with the likes of Macarthur Coal in Australia and a number of iron ore groups.
Chinese buyers did the same with local producers and their counterparts in India and Australia.
Mr Mittal told the earnings results press conference from London that he sees a second-quarter recovery in the steel industry.
"We believe things will start getting better from the second quarter and have a much deeper and positive impact from the second half of this year."
The company forecast its steel production would fall by 7%-15% in 2009.
In 2008 the company saw shipments of 101.7 million tonnes, down 7% year-on-year and down 33% in the final quarter at just over 17 million tonnes.
Earnings before interest tax, depreciation and amortisation came in at $US24.5 billion, up 26% year-on-year, but net income fell 9% to $US9.4 billion, after the company saw earnings plunge in the last quarter, helped by huge write-offs of over $US3 billion for inventory reductions and the impact of defaults on shipping contracts.
The company made a pre tax profit of around $US500 million in the last quarter, but it was a big loss after tax and the write-downs.
Looking ahead, the company said first quarter EBITDA was "expected to be approximately $US1.0 billion due to full impact of price declines and production cuts."
That’s an effective fall in operating profit of around 80% from the first quarter of 2008.
Those production cuts "will continue until inventory reduction process is complete."
The company has cut dividend, continues to slash capital spending and wants $US2 billion in cost savings this year alone. It wants to cut debt by $US10 billion.
But it will not be a rushed recovery: Mittal said it would take a further two and a half years before production at its steel plants reached the same levels before the global financial collapse in October.
Mr Mittal said "What we are saying is that in November and December we saw continuing deterioration in the market but in January I think this is the worst or the bottom of the situation. Now we believe there will be a gradual improvement that will take until 2010, maybe 2011.”
There was improved demand from China as steel mills reopened from December shutdowns, and increased steel production in emerging markets India and Russia,.
Steel makers were replenishing stock, while Mittal expects that the government stimulus plans will kick in China soon.
Even though Peabody En
